Why the U.S. Dollar is Critical for the S&P 500 Index this Week
Unfortunately I was sick the past few weeks and I am just now getting back into the swing of things. Similar to the demand pull that the warmer than usual spring has had on macroeconomic data, the warmer spring caused me to have an earlier than usual sinus infection as well as some horrific allergies.
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For the first time since the last week of December of 2011, the S&P 500 Index closed lower on the weekly chart. Recently I have been discussing the overbought nature of stocks based on a variety of indicators. However, the real question that should be asked is whether last week was just a short term event or if we see sustained selling in coming weeks.
This morning the U.S. Dollar Index(DXY) is declining lower by 0.34 cents to $76.05. Last week, the U.S. Dollar Index staged a small bounce on the daily chart, however, today the U.S. Dollar Index failed to trade above its daily chart 20 moving average. Please note that the DXY remains below all of the major moving averages and this puts the U.S. Dollar Index in a down trend. The U.S.
The U.S. Dollar Index is once again trading lower this morning. The U.S. Dollar Index is a basket of six other leading currencies verse the U.S. Dollar. Most commodities are traded in U.S. Dollars and this makes the dollar the worlds reserve currency. In June 2010, the U.S. Dollar Index was trading around $88.70, today the dollar is trading at $76.66.
There are at least eight reasonable explanations for recent price weakness --- there are at least eight excellent reasons why investors should be viewing this weakness as a buying opportunity. Clearly, the financial press has not attended any of my seminars on income investing. Lower prices and higher yields are good news for income investors!
The U.S. Dollar Index finished the week lower after failing to confirm last week’s potentially bullish closing price reversal bottom.
Clearly, both the daily and weekly chart patterns indicate this market can accelerate to the upside if the daily swing top at 78.61 is taken out to the upside. This move is likely to trigger a short-term rally to a 50% retracement level at 79.58.